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Old 09-27-2011, 04:31 PM   #21
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...or move.
Well, that's true I suppose. Of course you'd have to look at other taxes in the new area. I hear you Texans could move most anyplace and have lower property taxes (given similar home and area) but then, gee, here come state income taxes, high sales tax, and blaaah, blaaah, blaaah.

It's getting to be a tough game to win at.......
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Old 09-27-2011, 04:41 PM   #22
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Originally Posted by ziggy29
If I thought I had a secure $60K income stream without even saving a penny I wouldn't feel a need to play these games. Heck, if I had a $30K pension on top of SS I'd probably be living it up more today and saving less. Somehow I don't think my $8K pension in 2030 (at 65) will go very far...
I think if you position yourself so the income you receive is in line with government pensions you will be safe. Hopefully, they won't treat DB plans differently than DC plans. Although they already do in that many are state tax exempt.
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Old 09-27-2011, 04:42 PM   #23
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I hear you Texans could move most anyplace and have lower property taxes (given similar home and area) but then, gee, here come state income taxes, high sales tax, and blaaah, blaaah, blaaah.
If daytime temps are below 90 and it rains once in a while, I'll pay the "blaaah, blaaah, blaaah" without complaint...
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Old 09-27-2011, 07:35 PM   #24
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As I see the euro troubles unfold I start to wonder when the government here both state and fed will just impose a big tax on home owners to fix our monetary woes? Anybody else feel this comming down the Pike?

I think its almost here. If I'm not mistaken, Obamacare imposes a 3.8% fed tax on the sale price of sold real estate. States are sure to soon follow this with their own taxes.

Then if you exceed what ever the then current sale gain threshold is, the gain above this threshold level is counted as income, subject to income tax.

With the increased income level then medicare part B goes up & deduction limitations may be imposed. Etc.
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Old 09-27-2011, 08:14 PM   #25
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But if I had $500K (or even $350K after tax) in a taxable account I'd still have over $10K a year coming in from it... already taxed so it doesn't get included in income calculations.
Could you explain how you will have this $10K "coming in" without it being included on your 1099?

That never happens to me.

Ha
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Old 09-27-2011, 08:26 PM   #26
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Could you explain how you will have this $10K "coming in" without it being included on your 1099?

That never happens to me.

Ha
I'm don't play Ziggy on tv, but I assume he means he takes $10k out of a taxable account, which wouldn't be "income" like a distribution from an IRA would be.

I've the perfect plan: I actually won't have much income...
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Old 09-27-2011, 10:08 PM   #27
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If daytime temps are below 90 and it rains once in a while, I'll pay the "blaaah, blaaah, blaaah" without complaint...
"Welcome to New Jersey. Tax Assesor Guido and Inspector Knuckles will be by next week to figure out your real estate taxes. By the way, get ready for the hurricane next week."

When I bought a house in CO this summer they had to explain to me three times that RE taxes were due annually rather than quarterly.
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Old 09-27-2011, 10:12 PM   #28
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Could you explain how you will have this $10K "coming in" without it being included on your 1099?

That never happens to me.

Ha
$10K earnings from $500K is only 2%, easily the tax exempt interest from a muni fund.
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Old 09-27-2011, 10:41 PM   #29
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$10K earnings from $500K is only 2%, easily the tax exempt interest from a muni fund.
I see. This would not meet my hurdles for either return or risk, but it is tax free, that is true.

Ha
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Old 09-27-2011, 11:26 PM   #30
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Well, you'll likely have at least $30k SS combined with your DW. And with your $8k pension, that's $38k. If the two of you have acumulated a $1M portfolio (you said you were trying to be asset rich) to FIRE on and are earning $40k taxable on that, we're up to $78k.

If $78k is getting you means tested (and failing the "poor guy" test) for some gov't services, what ideas do you have?
I'm also not Ziggy, but am in a similar position. As things are now, it's possible, and even simple, to draw down from your taxable investments using tax loss harvesting and selling losers and winners together to create a significantly lower taxable income level. Deductions of various types will also lower your income. Just because you have a $1M portfolio doesn't mean it's all in taxable accounts or taxable investments. There are many ways to game the system legally. Unless the rules change significantly I plan to stay aware of the loopholes and do my patriotic duty to keep as much of my money out of the gov't's hands as possible. It's for their own good. They've shown they can't be trusted with my money.
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Old 09-28-2011, 01:12 AM   #31
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I'm also not Ziggy, but am in a similar position. As things are now, it's possible, and even simple, to draw down from your taxable investments using tax loss harvesting and selling losers and winners together to create a significantly lower taxable income level. Deductions of various types will also lower your income. Just because you have a $1M portfolio doesn't mean it's all in taxable accounts or taxable investments. There are many ways to game the system legally. Unless the rules change significantly I plan to stay aware of the loopholes and do my patriotic duty to keep as much of my money out of the gov't's hands as possible. It's for their own good. They've shown they can't be trusted with my money.
Harley, the rub with this is that you really don't want your losers to match your winners; that is the hallmark of a long term bad investment performance.

Ha
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Old 09-28-2011, 09:02 PM   #32
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Not match, I agree. But I have carryover capital losses from 2008 that should last me well into my 60s. And everybody has some losers occasionally that can be gotten rid of to decrease the tax burden. Combine that with tax-aware investing and you should be able to stay off the "high earner" list. In my case, I have a battle not letting the tax tail wag the investment dog. So I try to walk the line.
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Old 09-28-2011, 09:12 PM   #33
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Exactly.

It's easier just to remove the interest deduction and retain revenue in that manner.

Of course, the burden would fall on those that don't own their home (e.g. younger, and probably still wor*ing), but that's another discussion.

With interest rates at all time historical lows and home values falling year after year, the mortgage interest deduction today is probably at a low. That means if the mortgage interest deduction were to be eliminated today, it wouldn't be as hard to bear as it would be if interest rates were +10% and home values what they were 5 years ago.

But, with many homes already underwater/upside down, it could cause even more homeowners to walk away from a home they see as just a bad investment if they can't even deduct the interest off their income.
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Old 09-29-2011, 08:50 AM   #34
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In my case, I have a battle not letting the tax tail wag the investment dog. So I try to walk the line.
Me too. In retrospect I have made some minor mistakes (not selling) due to taxes over the years, but seemed right at the time. I try to walk the line too, but I still probably make mistakes trying to avoid taxes...
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Old 09-29-2011, 12:58 PM   #35
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Here's an example that might represent anyone on this board. How could a couple having these hypothetical income sources more favorably position themselves to not have income that could result in higher costs because of income based means testing?

SS - $30k
Pensions - $30k
Interest, divs, realized CG's from 1M portfolio - $40k
Total taxable income - $100k

If having a $100k income is resulting in significantly higher costs due to income based means testing by our oh-so-fine gov't, how might this couple arrange things to not show that income?

Note I show no IRA withdrawal as income assuming they already converted everything to Roth or just withdrew it to be part of their $1M portfolio as you suggested.

I don't think the opportunities for being "income poor and asset rich" are as readily available as you think. And I think there are costs involved. For example, hiding the $1M portfolio in a jar buried in the back yard would result in no income but would likely be foolish. Turning down your SS or pension would eliminate the income, but gosh, how silly would that be?
With the example you gave, there is no way to be income poor when you receive $30k in pension and 30k in SS on top of whatever you get from your taxable accounts. But again, if you have $60k a year guaranteed plus seven figure investment accounts, I would suggest you can afford to have something more than a simple lifestyle.

In my case, we won't have a pension at all and won't receive SS for probably 25-30+ years after FIRE (if there's any SS left at that point).

Let's say we have $1.2 million at FIRE and plan on taking 4%, or $48,000 a year. This is within the ballpark of our current FIRE plan.

We have $400,000 in taxable accounts, $600,000 in a traditional IRA, and $200,000 in Roth or HSA accounts. If we pulled 4% from each account, that would result in $16,000 withdrawal from taxable (taxable interest and dividends, plus a lot of return of capital that is not taxable, $24,000 IRA withdrawal (taxable), and $8000 tax free from the Roth.

Let's say half the taxable withdrawal is taxable, plus the whole Trad IRA. We have $32,000 in AGI. Add a couple kids in the mix (in our case) and we are just barely struggling to stay above the poverty line (actually a little less than 150% of the poverty line). In other words, we qualify for ample government programs targeting the poor (including free or very heavily subsidized health insurance in 2014). Even without kids, our federal taxable income drops close to zero assuming our taxable account is spitting out qualified divs and long term cap gains that fall under the zero percent bracket (we are fairly adept at tax planning right? ).

In reality, we could be recognizing capital losses in the taxable account and reducing our income even more by taking $3000 capital losses against ordinary income every year.

Either way, we look poor on paper based purely on income. But we would be living on $48000 a year, or roughly the median amount for our state for a family of 2. But we would have a paid for house (which saves us probably $6000-10000 a year), and have no employment costs (gas, car maintenance, wardrobe, lunches out, child care, etc), and pay no employment taxes (7.65% of 48000 is $3672). In reality, if it was the two of us, our standard of living would be well above the median household because roughly half our $48000 would go to core expenses, and the other half is for fun stuff (vacations, hobbies, new cars, etc).

I won't go into it here, but there are numerous advantages to maintaining a low AGI that I plan to utilize to the extent possible. Unfortunately (for our society at large) I think looking poor will pay good dividends.
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